Editorial & Advertiser Disclosure Global Banking And Finance Review is an independent publisher which offers News, information, Analysis, Opinion, Press Releases, Reviews, Research reports covering various economies, industries, products, services and companies. The content available on globalbankingandfinance.com is sourced by a mixture of different methods which is not limited to content produced and supplied by various staff writers, journalists, freelancers, individuals, organizations, companies, PR agencies Sponsored Posts etc. The information available on this website is purely for educational and informational purposes only. We cannot guarantee the accuracy or applicability of any of the information provided at globalbankingandfinance.com with respect to your individual or personal circumstances. Please seek professional advice from a qualified professional before making any financial decisions. Globalbankingandfinance.com also links to various third party websites and we cannot guarantee the accuracy or applicability of the information provided by third party websites. Links from various articles on our site to third party websites are a mixture of non-sponsored links and sponsored links. Only a very small fraction of the links which point to external websites are affiliate links. Some of the links which you may click on our website may link to various products and services from our partners who may compensate us if you buy a service or product or fill a form or install an app. This will not incur additional cost to you. A very few articles on our website are sponsored posts or paid advertorials. These are marked as sponsored posts at the bottom of each post. For avoidance of any doubts and to make it easier for you to differentiate sponsored or non-sponsored articles or links, you may consider all articles on our site or all links to external websites as sponsored . Please note that some of the services or products which we talk about carry a high level of risk and may not be suitable for everyone. These may be complex services or products and we request the readers to consider this purely from an educational standpoint. The information provided on this website is general in nature. Global Banking & Finance Review expressly disclaims any liability without any limitation which may arise directly or indirectly from the use of such information.

Blockchain – the answer to untangling legacy infrastructure in financial services?

By Adam Halvorsen, head of business development UKat DMI

Ask a relatively tech-savvy colleague or friend what they know about blockchain, and the most likely reply will be, “Isn’t that related to Bitcoin?” Blockchain is the underlying technology behind Bitcoin, and has been closely linked with the concept of cryptocurrency since its inception. But the potential for blockchain outside of that niche is becoming increasingly clear.

Blockchain has truly disruptive implications for the financial industry because it offers a decentralized ledger of all transactions, because it’s tamper-proof, and because it’s virtually instantaneous—all table stakes for processing any transaction in the financial services sector. In short, blockchain has many positive traits that could potentially help address one of the financial services’ sector’s biggest nightmares: legacy systems.

Streamlined wealth management

Big money means big problems: For high net worth individuals with different investment funds and a wide variety of financial services products in fragmented portfolios, large estates can become a morass of investments orphaned in different places. It’s not uncommon for estates to have investment management problems.

Wealth management firms become the point of focus to organize prospectuses, investment performance history and current balance – bringing everything together for their client. Unfortunately, clients don’t have easy visibility into their portfolios with a unified look and feel. With blockchain, all financial records, reports and files can be added to the transaction and become files that are private between the money manager and the estate.

This allows the estate and individuals to avoid fraud; all files become transaction records that live forever. It’s a document management shift of great importance, both from the financial manager perspective and from the client perspective.

Mortgage banking

Anyone who has bought a house knows the hand-cramping reality of signing dozens of times on dozens of documents during a close. Inspections, appraisals, lawyers, title company records are all potential elements to a blockchain transaction. Within this blockchain ‘smart contract’, every step is a record that makes the chain more unique, for example, when the title company does paperwork, a block is added to the chain. When the inspector finishes his inspection, a block is added to the chain. When the lawyer reviews the documents, a block is added to the chain. And so on. Every addition makes the chain more valuable and the record or the transaction more valuable to both the lender, the insurance company, the title company and any party that has an interest in the transaction.

Insurance

PwC estimates that blockchain could help the insurance industry save between $5 billion and $10 billion annually, thanks to potential improvements to placement, claims settlement, and compliance checks.

At its most basic, insurance is about swapping money for risk. It doesn’t matter if the risk is a motorcycle or a rocket launch. Everything has risk, and everyone taking risks tries to hedge their bets.

Blockchain helps enormously in that regard, because the more insurers know about the history of something, the better business decision they can make in choosing to underwrite the risk and price the policy. For example, most things have a unique ID, such as a VIN number on a vehicle, a parcel number on a piece of real estate, a serial number on a consumer product or a meaningful ID on capital equipment. These ID’s make everything an instrument in the blockchain and all can be appended to the respective policy to justify the risk rating and therefore price.

A revolution

Given blockchain’s ability to facilitate a more streamlined method of providing wealth management – as well as the potential implications in areas like mortgage banking and insurance – it’s easy to begin to see how the technology may revolutionize the entire financial services sector. The possibilities created by such characteristics as unforgeable record creation alone have potentially massive and global implications in the critical area of identity data security – the Achilles’ heel of digital and online banking, and a topic that’s prominently on the minds of not only financial services professionals, but also consumers.

Blockchain clearly has the potential to overhaul existing business models in the financial services sector. But delivering on its promise is certain to prove no easy task, given the existing core beliefs and legacy systems that are embedded in the industry. Despite that, the question is not whether business models supported by blockchain technology will disrupt these organizations, but when. As organizations advance beyond seemingly endless debates about how to untangle complex, legacy infrastructure, perhaps they will finally have a secret weapon for defending their castles.